A FICO Score is a three-digit number calculated from the credit information on your credit report at a particular point in time. It summarizes information in your credit report into a three-digit number that lenders can use to assess your credit risk quickly, consistently, objectively and fairly. Lenders use the FICO® Score to estimate your credit risk – how likely you are to pay your credit obligations as agreed. It also helps you obtain credit based on your actual borrowing and repayment history without consideration of prohibited types of information, such as race or religion.
FICO Scores include "score factors" that affect the score. Addressing some or all of these score factors can help you improve your financial health over time. Having a good FICO Score can put you in a better position to qualify for credit or better terms in the future.
How does it help?
A FICO score takes into account five categories of information in a credit report. Whether positive or negative, the importance of any singular factor depends on the information in your entire credit report. Those five factors include:
1. Payment History
2. The Amounts You Owe
Credit utilization, one of the most important factors evaluated in this category, considers the amount you owe compared to how much credit you have available. For example, if you have a $2,000 balance on one card and a $3,000 balance on another, and each card has a $5,000 limit, your credit utilization rate would be 50%. While lenders determine how much credit they are willing to provide, you control how much you use. FICO's research shows that people using a high percentage of their available credit limits are more likely to have trouble making some payments now or in the near future, compared to people using a lower level of credit.
Having credit accounts with an outstanding balance does not necessarily mean you are a high-risk borrower with a low FICO Score. A long history of demonstrating consistent payments on credit accounts is a good way to show lenders you can responsibly manage additional credit.
3. Length of Credit History
In general, a longer credit history will increase your FICO Score, all else being equal. But even people who have not been using credit long can get a good FICO Score, depending on what their credit report says about their payment history and amounts owed. Regarding your length of history, your FICO Score takes into account:
4. New Credit
FICO's research shows that opening several credit accounts in a short period of time represents greater risk – especially for people who do not have a long credit history. In this category your FICO Score takes into account:
Looking for an auto, mortgage or student loan may cause multiple lenders to request your credit report, even though you are only looking for one loan. The FICO Score compensates for this shopping behavior in the following ways:
5. Types of Credit You Use
Your FICO Score considers your mix of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans. It is not necessary to have one of each, and it is not a good idea to open a credit account you don't intend to use. In this category your FICO Score takes into account:
When you apply for credit, your FICO Score can influence the credit limit, interest rate, loan amount, rewards programs, balance transfer rates and other terms that lenders will offer you.
FICO Scores are used by lenders in connection with a variety of credit products including:
Lenders can get your FICO Scores from all three of the major U.S. credit reporting agencies (TransUnion, Equifax and Experian). Your FICO Score from each agency may be different because it is based solely on the specific credit information in that agency's credit file, and not all lenders report to all three credit reporting agencies. Even in instances where the lender does report to all three credit reporting agencies, the timing of when information from credit grantors is updated to your credit file may cause differences in your scores across the three credit reporting agencies.
The best advice is to manage your financial responsibilities over time. Here are some tips:
Tip 1: Pay on Time. Late payments and collections can have a major impact on your FICO Score. Also, note that paying off a collection account, or closing an account on which you previously missed a payment, will not remove it from your credit report – it will stay on your report for seven years.
The fewer times your payments are late and the longer that you pay your bills on time, the better off you will be. If you've had a hard time paying your bills on time, consider signing up for an automated bill payment service. You can enroll online in AutoPay for your credit card account on the Payments & Transfers tab.
If you are having trouble paying your bills, contact your creditors or seek help from a non-profit credit counseling agency. A legitimate credit counseling agency can work with your creditors to lower your monthly payments. If you can begin to manage your credit responsibly and understand the benefit of paying bills on time, this can help your credit health over time.
Tip 2: Manage Your Accounts. High balances on your credit cards and other revolving credit can lower your FICO Score. You may want to increase the amounts of your monthly payments until all balances are manageable.
Have credit cards but manage them responsibly. In general, having credit cards doesn't hurt your FICO Score if you make payments on time. People without credit cards actually tend to be slightly higher risk than people who have shown they can manage credit cards responsibly.
Do not open cards that you don't need. While your available credit amount might increase, this behavior could backfire and lower your FICO Score, because new accounts can lower the average time you've had credit accounts established. Even if you have used credit for a long time, opening a new account can still lower your FICO Score.
Close unused credit cards cautiously. Owing the same amount but having fewer open accounts may actually lower your FICO Score. You may want to keep balances very low on your active credit cards when you close unused cards.
It's OK to request and check your own credit report. Every 12 months you are entitled by law to one free credit report from each credit reporting agency through AnnualCreditReport.com. Checking your own credit report will not harm your FICO Score.
Tip 3: When Seeking New Credit, re-establish your credit history if you've had problems in the past. Opening new accounts responsibly and paying them on time each month can help to develop a deep history for your FICO Score in the long term. Don't forget to keep paying all your other accounts on time. Just one delinquency reported on your credit report can set you back. Remember to avoid applying for credit you do not need.
FICO and “The score lenders use” are trademarks and/or registered trademarks of Fair Isaac Corporation in the United States and other countries.
First Bankcard and Fair Isaac are not credit repair organizations as defined under federal or state law, including the Credit Repair Organizations Act. First Bankcard and Fair Isaac do not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history or credit rating. To request a copy of your credit report, please visit: http://www.annualcreditreport.com
For answers to the complete set of potential questions you may have about FICO® Scores, download the complete FICO® Score FAQs (PDF) or FICO Consumer Education (PDF) FICO is a registered trademark of Fair Isaac Corporation in the United States and other countries. First Bankcard and FICO are not credit repair organizations as defined under federal or state law, including the Credit Repair Organizations Act. First Bankcard and FICO do not provide "credit repair" services, advice or assistance regarding "rebuilding" or "improving" your credit record, credit history or credit rating.
All FICO® Score materials are Fair Isaac proprietary information. © 2015 Fair Isaac Corporation. All rights reserved.
Cards are issued by First National Bank of Omaha.